Brown faces 'black hole' in spending

By George Jones, Political Editor

12:00AM BST 11 May 2001

GORDON BROWN was forced to acknowledge yesterday that he might have to rein back on ambitious plans to boost spending on public services - the centrepiece of Labour's election campaign - half-way through the next Parliament.

The Conservatives stole a march on the other parties by becoming the first to publish their manifesto - Time for Common Sense. William Hague said it was the "most ambitious" produced by the party for a generation. The Tory leader said it proposed "going further than any government before in handing back to individuals and families the power to shape their own lives and their own communities".

Labour mounted a determined effort to undermine Mr Hague's attempt to regain the Tories' traditional reputation as a tax-cutting party with promises to reduce taxes for savers, pensioners and families with young children, and to abolish the IR35 tax on information technology consultants.

Mr Brown claimed that the Tory tax cuts were "irresponsible" and would cost more than £16 billion over the first three years - twice the figure in the Conservative manifesto. He alleged that £8 billion of savings that the Tories said they had identified did not stand up, and the party's plans could only be financed by big cuts in spending on public services or by higher borrowing.

The Conservatives turned the tables on Mr Brown by highlighting what they claimed was a "black hole" in his own spending plans.

The independent Institute of Fiscal Studies revealed on Wednesday that Mr Brown might have to raise taxes if he wanted to maintain the big boost to spending promised by Labour over the lifetime of the next Parliament. It concluded that Mr Brown would be able to afford the 3.8 per cent annual increase in spending on public services over the next three years without raising taxes.

But if he wanted to maintain the same level of public spending growth in the last two years of the Parliament, taxes would have to be raised by some £5 billion a year - equivalent to almost 2p on the basic rate of income tax.

The Chancellor was challenged yesterday on whether he would be prepared to raise taxes so that spending could continue at the increased rate throughout the parliament or would allow expenditure to level off after 2004.

Mr Brown said that Labour had not made any commitment to increase spending at the higher rate in 2004-5 and 2005-6. He said the estimates published at the time of the March Budget showed that spending was projected to grow at 2.5 per cent a year in line with growth in the economy in those two years. He said a decision on whether to raise the projections would be taken next year.

The row was embarrassing for Mr Blair and Mr Brown, who have sought to make higher investment in public services the dividing line between Labour and the Tories. They have criticised the Conservatives for promising to hold public spending to the 2.5 per cent trend rate of growth in the economy.

Mr Brown yesterday refused to rule out further tax increases on business in the next parliament, although the party's manifesto is expected to reaffirm that Labour will not raise the basic or higher rates of income tax.

The Conservatives questioned how Mr Brown's admission that spending could be curtailed in three years' time squared with recent statements by Mr Blair that health, schools, transport and the police needed "five, six, seven, eight years of sustained extra investment".

Labour was under further pressure last night after being accused by the Tories of attempting to frighten the elderly by claiming that pensions were at risk if the Conservatives came to power.

The Tories accused Labour of resorting to "irresponsible scare tactics" after Alistair Darling, the Social Security Secretary, announced that he would be writing to pensioners claiming that Conservative plans for long-term pensions reform would lead to cuts in the basic pension.